Reverse convertibles are short-term bonds that pay high yields and are coupled to well known stocks. The bonds generally have terms of three months to one year and promise to repay the investor their principal plus exceedingly high interest rates (generally between 6% and 13%) unless the price of the underlying stock drops below a certain level (called the “knock in” level) which is usually 20% or so below its market price at the time the reverse convertible is sold. In that event, the investor does not get back any of his principal or interest but instead gets stock worth far less than the amount of his investment and suffers significant losses.
With the recent downturn in the market, many conservative investors have lost money investing in this product. If you were told that there was no risk in reverse convertibles and that they were appropriate for conservative bond investors, you may have a securities fraud case against your financial advisor or brokerage firm. Contrary to the representations often made by financial advisors, reverse convertibles are an extremely risky structured finance product created by Wall Street firms to generate commissions. Investors experience huge losses if the price of the stock moves in the wrong direction, which is exactly what happened last year.
If you are concerned about your investment in a reverse convertible investment, The White Law Group my be able to help. To speak to a securities attorney please call our Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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